In this Deal Note® we go beyond just the Confidential Information Memorandum (CIM), we want to address and emphasize the broader topic of creating a complete environment of trust between you as the seller of a middle market Aerospace and Defense company and the potential buyers of your company as well as your advisors, e.g., legal, finance, and your investment banker. This is the topic of creating a total environment of transparency.
In our July 19, 2022 Deal Note® 28 “Complete Disclosure” we discussed the need to assure that the the CIM is completely accurate, including both positive and potentially material negative information. However, the reality is that as the owner and seller of a company, it is incumbent upon you to immediately create an atmosphere of candor with your selling advisors and the potential buyers of your company. The process begins with you reflecting on the history of the company and determining not only the good news and future of your company but also highlighting past legal, environmental, customer issues, etc., that either are outstanding or significant enough to share with the buyers and your advisors. And as the sale process evolves through preliminary due diligence, oral discussions, CIM preparation, management presentations, detailed due diligence by the prospective buyer, and purchase agreement preparation you and your team willingly discuss not only the positive but also the negative.
Doing so will message your advisors and potential buyers that you are fully transparent with all relevant information on your company. The benefit to being transparent is that you will inspire confidence with the potential buyer and significantly reduce the risk of threats to price reduction or a buyer terminating a purchase of your company. A relevant analogy is if you were purchasing a used car, you would expect and hope that the seller of the automobile would disclose issues that have occurred with the vehicle, e.g., accidents, significant repairs, defects, etc. You will pay a fair price for the vehicle if you believe that the seller is being transparent in disclosing the less than perfect vehicle. The same is true for your company, it is less than perfect, it has had issues in its years of operation, thus disclose them and convince the buyer that what you are selling has been fully and accurately disclosed.
Have a great day everyone,
Bruce Andrews
Partner
